  
1. Introduction
1.1 Objective
This study examines the economic impact of the build-up to the 2003
America's Cup Defence.
The 2000 America's Cup provided a significant boost to the Auckland and
New Zealand economies, from the additional expenditure by syndicates,
organisers, sponsors, super-yachts, tourists, and local and central
government.
The 2003 Defence is also expected to have a considerable economic
impact. The build-up began shortly after the successful Defence in March
2000, activity has been growing over the last two summers. This activity,
and consequent impacts on the economy, will build to a new peak during the
2003 Defence. Challenger syndicates and defender Team New Zealand have been
involved in intensive preparation for the Defence, and the preceding Louis
Vuitton series to find the challenger. This activity, centred on Auckland's
Viaduct Harbour, has meant substantial demand for goods and services from
Auckland businesses in the marine, accommodation, construction,
hospitality, and transport sectors, to meet the needs of syndicates and
crews.
The Ministry of Tourism has commissioned Market Economics Ltd to
estimate the economic impacts of this build-up period, over the year to
June 2002.
1.2 Approach
Economic impact arises mainly from the additional direct expenditure
into the economy, generated by America's Cup related activity. It is
calculated in terms of the amount and the distribution of total value added
(broadly comparable with GDP) and employment sustained by this additional
spending.
The key initial task was to identify the structure of the Cup-related
activity during the build-up, because this determines the flows of
expenditure through the economy. The nature of the impact in the build-up
period is different from that in the Defence period, because the patterns
of expenditure and activity are different. Most of the activity during the
build-up is by syndicates and associates, in preparation for the main
event, with some associated activity by organisers, visiting super-yachts
and sponsors. In this period, there is limited tourism activity generated
by the event, from supporters groups and interested travellers, and there
is limited media activity, virtually no commercial spectator services on
the Hauraki Gulf practice areas, few super-yachts visiting, and a generally
low level of spectator and visitor activity in the Viaduct Basin area.
Similarly, the major direct impact on the Auckland marine sector also
occurs in the Defence period. This is because the challenger syndicates'
main expenditure on design, construction and equipping of new generation
yachts goes to overseas businesses. The sailing action in the build up
period is mostly done in yachts purchased after the 1995 and 2000 series,
and the main revenue for the marine sector is from maintenance and
servicing these older yachts, together with expenditure on spars, support
boats and the like.
The approach adopted here to estimating the impact is consistent with
that applied for the 2000 study. The first stage has been collection of
information from syndicates, suppliers and others to identify total and
additional activity and expenditure in the economy. However, experience
from the 2000 study meant that greater effort has been made to develop a
comprehensive record of America's Cup-related activity in Auckland,
particularly during the build-up period, with a clear focus on the
syndicates and associated activity, rather than the super-yacht, spectator
and visitor effects. This is because most of the additional expenditure in
the Auckland economy during 2001 and 2002 has been from syndicates
establishing and maintaining bases, then maintaining the sailing and shore
crews in Auckland, with accommodation, catering, and transport, and
operating the practice yachts. The expenditure on design, development and
construction of the new generation yachts has occurred mainly in overseas
economies (apart from Team New Zealand). The additional expenditure by
syndicate associates (family and friends) has been driven mainly by their
length of stay in Auckland.
Information was not available from all syndicates, to provide a count of
their direct expenditure, so that total levels of expenditure for the
build-up period have been estimated from the reported expenditure
(collected in interviews) and syndicate activity (especially the numbers of
crew and associates, and the length of their presence in Auckland in the
2001/2002 year), and comparable information from the 2000 study. This
provided estimates for syndicates which did not provide expenditure
information, based on person nights in Auckland and average daily rates for
accommodation, catering, personal expenditure, transport and so on. Net
expenditure on international air travel was estimated according to crew
numbers and proportions of air costs incurred in the Auckland economy.
Detailed resource consent data was used to identify construction investment
in the syndicate bases.
The second stage is analysis of this expenditure information. The
preliminary step has been to exclude transfers of expenditure within the
economy (see below) so as to estimate the net additional expenditure in
each sector. From this, the direct impacts in terms of value added and
employment in the economy have been calculated, then the total impacts
(direct, indirect and induced) have been estimated using input-output
models of the Auckland and New Zealand economies for 2001.
1.3 Transfers and Exclusions
For economic impact analysis, it is important to exclude transfer
effects - that expenditure which would have occurred in the economy in any
case - and also to distinguish between expenditure arising directly from
the event, and that associated with the event.
Broadly, the net additional expenditure in the economy is total
expenditure less any transfers. Most of the expenditure during the build-up
period does represent net addition to the economy, because that money would
not have been spent in New Zealand otherwise. In particular, the spending
by challenging syndicates and event organisers on accommodation, catering,
transport, base expansion and so on would not have occurred if the 2000
Defence had not been successful. It would still have occurred, but instead
have been directed to another (overseas) location.
In regard to transfer effects, two important assumptions for the
analysis are:
- the presence of Team New Zealand in Auckland represents
additional activity in the economy, directly attributable to
the 2003 Defence. This is on the basis that if Team New Zealand was
instead mounting a challenge overseas, then the syndicate crew (and some
families/supporters) would be established overseas in the build-up
period; or that if there was no New Zealand challenge, then the crew
would be dispersed internationally. Therefore, the fact that the 2003
Defence will be in Auckland means that most Team New Zealand expenditure
is a net addition to the economy. The capital expenditure on new yachts
for the Defence (which falls mainly after the 2001/2002 year) represents
additional activity because it would not have occurred if a New Zealand
syndicate was not involved in the America's Cup (for either defence or
challenge). Therefore, that too will represent additional expenditure
which is attributable to the event.
- marine sector activity constructing and re-fitting super-yachts is
excluded from this analysis. Servicing demand from the super-yacht
sector is a major effect for marine businesses associated with the
America's Cup, and there have been significant flow-on gains for the New
Zealand marine sector following the 2000 Defence. The exposure in
1999-2000 of super-yacht owners and operators to the New Zealand
boat-building sector, and the corresponding awareness by the sector to
the opportunities from the super-yacht industry, has helped sustain
sector growth in the past three years. The 2003 Defence will be a
considerable further impetus to the New Zealand marine sector's profile,
and the additional demand from this will flow directly through the
economy. However, for this analysis, it is considered that the current
activity building super-yachts is associated with the presence of the
America's Cup in Auckland, but not directly accountable as part of the
impact of the build-up (though the expenditure from servicing syndicate
owners' yachts in the last few months is included).
1.4 The Nature of Economic Impacts
Economic impacts have been measured as $m of value added
in the economy (broadly equivalent to GDP) and employment sustained (FTE or
full-time equivalent years). Value added measures the net additional
contribution of activity, covering wages and salaries (including income
tax), consumption of fixed capital, GST and indirect taxes (on production),
and operating surplus, less subsidies. It excludes the value of goods and
services directly purchased from other sectors, including imports and
duties. Value added is thus a share of total output, typically in range of
30% to 60% depending on the sector.
The total impacts are the aggregate effect of direct, indirect and
induced effects, as Cup-related expenditure flows through the economy.
Direct impacts arise from increased activity in sectors
which directly service the event - particularly the accommodation,
construction, marine services, transport and retail sectors. To meet the
additional demand, businesses in these sectors in turn require more goods
and services from their own suppliers, whose level of activity consequently
increases. This is the indirect impact, which can flow
through several layers in the economy. In addition, the additional activity
from direct and indirect impacts generates more wages and salaries for
workers in those businesses, and returns to shareholders. The economy is
further stimulated when these additional earnings are spent on (consumer)
goods and services. This is the induced effect. The
total economic impact is the sum of the direct, indirect
and induced impacts.
Not all the additional expenditure represents extra activity in the
Auckland and New Zealand economy. There are "leakage" effects, especially
where some of the expenditure is to purchase goods or services which have
been imported to the Auckland economy - from overseas, or from other parts
of New Zealand. These leakage effects are taken into account in the
economic models, so that only the flow on effects within the Auckland
region are included in the regional multiplier analysis, and flow on
effects within New Zealand are included in the national level analysis.
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